Free Interns-The End Of An Era?

As an employer, at one time or another, you have probably helped eager students gain real work experience as interns at your company. The intern isn’t paid; but that’s okay because you provide the intern with great on-the-job experience and educational training while you are able to observe the intern in what amounts to a months-long interview; a great deal for both sides. Until, of course, you find out that your interns are now suing you for wages. But wait, you and the intern agreed that the position was unpaid; is it even possible for interns to be entitled to wages? On June 11, 2013 this was the very issue presented before the United States District Court for the Southern District of New York in the case, Fox Searchlight Pictures, Inc. v. Glatt. There, the District Court held that Defendant Fox Searchlight Pictures, Inc., (“Searchlight”) violated federal and state labor laws when it hired the plaintiffs as interns because their internship responsibilities were really no different from, and belonged to, an employee.

In issuing its decision, the Court applied a two-step analysis to determine Searchlight’s liability under the Federal Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).

As to the first step of the analysis, the Court applied the Second Circuit’s “formal control” test, and “functional control” test. The Court determined Searchlight exerted enough control over the subsidiaries management and hiring operations to satisfy both of these tests. Thus, under the FLSA and NYLL, Searchlight was the Plaintiffs’ employer.

As to the second step of the analysis, the Court applied the common six factor criterion test for intern status from a Department of Labor (“DOL”) fact sheet. Under this test, an intern’s status is determined by weighing “all [of] the circumstances. ” The DOL test is as follows:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

The internship experience is for the benefit of the intern;

The intern does not displace regular employees, but works under close supervision of existing staff;

The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

The intern is not necessarily entitled to a job at the conclusion of the internship; and

The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Searchlight could not demonstrate that the plaintiffs satisfied five out of the six factors. Consequently, the Court held the plaintiffs were not interns. As to the first criterion, the plaintiffs did not receive any “beyond the job training” because they merely acquired the same office knowledge as any other employee. Regarding the second criterion, the Court held the Plaintiffs’ receipt of “résumélistings, job references, and an understanding of how a production office works” were “incidental benefits” because any employee would receive the same types of benefits. Instead, the Court found Searchlight to be the true benefactor of the employer-intern relationship because Searchlight received the benefit of free employment. As to the third prong, the Court noted that some of the tasks Plaintiffs performed, such as picking up documents, paychecks, and tracking purchase orders and invoices, were tasks that an employee would perform. Under the fourth criterion, the Court acknowledged the plaintiffs were “beginners” who performed “menial” work. However, their jobs were still “essential” and Searchlight received an immediate advantage” from their free labor. Therefore, the “trainee exception” did not apply. Plaintiffs satisfied the fifth criterion because they did not expect a job at the end of the internship. Lastly, although Searchlight demonstrated that the plaintiffs satisfied the sixth criterion because they did not expect to be paid as interns, the District Court rejected this factor. The District Court explained the plaintiffs should have been paid and were not allowed to “waive their entitlement to wages” under the FLSA

The District Court concluded that Searchlight violated the FLSA and NYLL because they mistakenly classified the plaintiffs as interns and did not pay them for their employee labor. It is from the Glatt case that employers are left with this final thought: the next time you ask your intern to perform a task, make sure it is not a task for an employee.

NOTE: Post-Glatt Lawsuits

The Glatt decision has given birth to a new era of employment actions. See below for recent lawsuits filed by former interns against their employers. Stay tuned to this blog as we wait for further updates on how the Second Circuit develops this area of employment actions.

On June 17, 2013, a former intern sued his employer alleging his internship responsibilities such as making phone calls and preparing coffee belonged to an employee. Complaint Henry v. Warner Music Grp. Corp.,No. 155527 (N.Y. Sup. Ct. filed June 17, 2013).

On May 8, 2013, the Southern District Court dismissed the intern’s wage claim against her employer. Although this case was dismissed, it serves as another example of the types of claims that are to come. Xuedan Wang v. Hearst Corp., No. 12-CV-793, 2012 U.S. Dist. LEXIS 97043 (S.D.N.Y. May 8, 2012),

A special thanks to Melissa Cefalu a law clerk at Cullen and Dykman LLP, for help with this post.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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